Activist investor David Einhorn’s hedge fund, Greenlight Capital, withdrew the highly publicized case it brought against Apple alleging that the tech giant tried to ram through a proposal in its annual proxy by “bundling” it with other less controversial proposals. But not before Judge Sullivan gave Greenlight a nice win, and left some important precedents on proxy voting for the rest of us.
The issue in Greenlight Capital v. Apple, Inc. was whether, for purposes of a shareholder vote, Apple could bundle its proposal to revoke its Board’s power to unilaterally issue preferred stock, commonly known as “blank check” authority, with several unrelated proposals with shareholder appeal. According to Judge Sullivan, the authority to unilaterally issue preferred shares “has been derided by shareholder rights advocates given its potential use as an anti-takeover tactic…” Nevertheless, Greenlight – owner of 1.3 million shares – wanted Apple’s Board to exercise that “derided” power and issue perpetual preferred shares with a 4% dividend to existing shareholders because Apple’s stock price has stagnated.
Greenlight’s and Apple’s difference of opinion might never have reached the courthouse if Apple had not “bundled” the proposal with three other proposals. In addition to the elimination of “blank check” authority, Apple sought to (1) conform previously adopted majority voting provisions to California state law; (2) establish a par value for Apple’s common stock; and (3) address other ministerial changes. Presumably, Apple figured the bundled proposal was sure to pass. Greenlight argued that by combining these four issues into a single proposal for a shareholder vote, Apple violated an SEC rule requiring a company’s proxy statement to “identify clearly and impartially each separate matter intended to be acted upon.”
Judge Sullivan agreed with Greenlight, and preliminarily enjoined Apple from offering the bundled proposal to its shareholders. Of particular interest, the court found that Greenlight would be irreparably harmed by having to vote on the proposal, and that the balance of equities — between affecting Greenlight’s shareholder rights, on the one hand, and forcing Apple to pay an estimated $3 million to prepare an amended proxy as well as validating a claimed “unprecedented interference [into] the exercise of corporate suffrage by one of the most respected companies in America,” on the other hand — weighed in Greenlight’s favor.
The immediate impact of the opinion is that Apple’s CEO Tim Cook withdrew the bundled proposal and expressed a willingness to take seriously Einhorn’s and other investors’ suggestions on how to unlock more of Apple’s cash pile, one of the largest in technology. And the Apple Board’s blank check authority, disliked by shareholder rights groups, can be reset for a vote next year on its own merits. Not a bad outcome all around. The high profile decision and fast paced nature of the case — Greenlight filed its complaint on February 7 and Judge Sullivan issued his opinion on February 22 – also likely will appeal to plaintiffs seeking to force corporate action in the future.
(Hat tip again to Neal Kronley for his help on this post.)